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How different is a home loan overdraft from a regular home loan?

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How different is a home loan overdraft from a regular home loan?

Last updated: November 8 2018
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  • How different is a home loan overdraft from a regular home loan?

    Can anyone explain what a home loan overdraft scheme is and how different is it from a regular housing loan? Also, the pros and cons?
  • #2

    #2

    Re : How different is a home loan overdraft from a regular home loan?

    Well, banks have been trying to provide as much as they can to borrowers in the shape of different interest rates like fixed rate, floating rate, or semi-fixed rate, apart for the flexibility of the tenure and also the eligibility criteria to begin with. In the flexibility area, banks are now allowing borrowers to use their home loan account as an overdraft account to make the entire home loan experience a good one.

    To be precise, a home loan overdraft account is more or less like a current account but one with an overdraft limit. The account allows you to deposit surplus funds into your home loan account.
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    • #3

      #3

      Re : How different is a home loan overdraft from a regular home loan?

      Thanks Malvish so it is more than a normal home loan account. What does it mean by surplus funds in the home loan account and what purpose do the surplus funds serve?

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      • #4

        #4

        Re : How different is a home loan overdraft from a regular home loan?

        mmalhot The surplus amount that you deposit is considered as prepayment against the principal loan amount.
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        • #5

          #5

          Re : How different is a home loan overdraft from a regular home loan?

          So how is the loan deducted from the surplus account and how is the interest calculated?

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          • #6

            #6

            Re : How different is a home loan overdraft from a regular home loan?

            Well, to be precise, regular surplus deposits in the overdraft account means reduction in the outstanding principal and hence a reduction of loan amount, bringing down the loan liability to a great extent.

            The loan interest is calculated on the outstanding principal that remains after the deduction of the money deposited in the home loan overdraft account over and above the EMI.

            Just like a regular home loan account the interest is calculated based on the outstanding principal of the loan amount. However, it is calculated on a daily basis and is debited at the end of the month. So, it varies, based on the outstanding principal. Prepaying the loan brings down the interest that you end up paying, as well as the tenure of the loan.

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            • #7

              #7

              Re : How different is a home loan overdraft from a regular home loan?

              By any chance, the EMI get affected by the change in principal amount?

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              • #8

                #8

                Re : How different is a home loan overdraft from a regular home loan?

                The EMI doesn’t change irrespective of the amount you prepay.
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                • #9

                  #9

                  Re : How different is a home loan overdraft from a regular home loan?

                  If the EMI burden doesn't come down, then why should people opt for a home loan overdraft?

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                  • #10

                    #10

                    Re : How different is a home loan overdraft from a regular home loan?

                    Well, the home loan over draft is primarily for individuals who can easily save extra money every now and then from some source/s. Borrowers, especially self-employed individuals, having access to short-term liquidity should opt for such loan facility.
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